fixed exchange rate

(redirected from Currency peg)

Fixed exchange rate

A country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies.

Fixed Exchange Rate

An exchange rate for a currency where the government has decided to link the value to another currency or to some valuable commodity like gold. For example, under the Bretton Woods System, most world currencies fixed themselves to the U.S. dollar, which in turn fixed itself to gold. A government may fix its currency by holding reserves of the peg (or the asset to which it is fixed) in the central bank. For example, if a country fixes its currency to the British pound, it must hold enough pounds in reserve to account for all of its currency in circulation. Importantly, fixed exchange rates do not change according to market conditions. It is also called a pegged exchange rate.

fixed exchange rate

An exchange rate between currencies that is set by the governments involved rather than being allowed to fluctuate freely with market forces. In order to keep currencies trading at the prescribed levels, government monetary authorities actively enter the currency markets to buy and sell according to variations in supply and demand. Compare floating exchange rate. See also devaluation.
References in periodicals archive ?
This is good news in terms of external risk as Saudi Arabia's reserves have already been taxed by the worsening current account, and by the need to defend the currency peg.
This month the bank dropped a currency peg and moved to a partial float that allows the kwanza to trade freely within a range set by the bank.
But Lebanon's currency peg, unlike those of oil-rich Gulf states, is not backed by huge financial firepower.
It would instead attempt to provide a recipe to calculate the cost of a currency peg, particularly the US dollar.
Greg Wilcox LONDON: Saudi Arabia is under no pressure to ditch the currency peg to the dollar thanks to its currency reserves.
Recently there has been renewed pressure on GCC FX pegs, with the ongoing weakness of oil prices and the strength of the US dollar giving rise to speculation in the forwards market that Saudi Arabia in particular may adjust or abandon its longstanding currency peg against the US dollar, according to Emirates NBD Research.
This is more than enough for Saudi Arabia to cover its import needs, support any future external debt requirements and defend its currency peg.
China surprised currency traders by announcing it is replacing its decade-long currency peg with a flexible exchange-rate, reports Jennifer Hughes for Financial Times.
It was a time when transparency in the institutional division of labor appears to have been an extremely minor concern, but a stability target for the lira was set and a currency peg to the dollar was gradually implemented.
Due to the currency peg, monetary policy set by the US Federal Reserve has to be imported, Eke said.
When growth is strong and the majority of the country's trade is with the United States, the currency peg holds.
pressure on the country's currency peg to the US dollar.